58.
P/E Model and Cash Flow Valuation Suppose that a firm’s recent earnings per share and
dividends per share are $2.50 and $1.00, respectively. Both are expected to grow at 10
percent. However, the firm’s current P/E ratio of 22 seems high for this growth rate. The
P/E ratio is expected to fall to 18 within five years. Compute a value for this stock by first
estimating the dividends over the next five years and the stock price in five years. Then
discount these cash flows using a 14 percent required rate.
59.
At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you
need to buy 200 shares of General Electric (GE), which trades at $45.19?
60.
At your discount brokerage firm, it costs $7.95 per stock trade. How much money do you
receive after selling 250 shares of General Electric (GE), which trades at $55.19?
61.
A preferred stock from DLC pays $3.00 in annual dividends. If the required return on the
preferred stock is 9.3 percent, what is the value of the stock?
62.
Ultra Petroleum (UPL) has earnings per share of $1.75 and P/E of 42.56. What is the stock
price?
63.
JPM has earnings per share of $3.75 and P/E of 47. What is the stock price?
64.
A firm is expected to pay a dividend of $2.00 next year and $3.75 the following year.
Financial analysts believe the stock will be at their price target of $125.00 in two years.
Compute the value of this stock with a required rate of return of 15 percent.
65.
Financial analysts forecast ABC Inc. growth for the future to be 12 percent. ABC’s recent
dividend was $1.60. What is the value of ABC stock when the required return is 15
percent?
66.
A fast growing firm recently paid a dividend of $0.80 per share. The dividend is expected to
increase at a rate of 30 percent rate for the next four years. Afterwards, a more stable 7
percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this
stock, what is its value?
67.
A fast growing firm recently paid a dividend of $1.00 per share. The dividend is expected to
increase at a rate of 15 percent rate for the next 3 years. Afterwards, a more stable 6
percent growth rate can be assumed. If a 10 percent discount rate is appropriate for this
stock, what is its value?
68.
A firm recently paid a $0.50 annual dividend. The dividend is expected to increase by 10
percent in each of the next three years. In the third year, the stock price is expected to be
$110. If the required return is 15 percent, what is its value?
69.
Campbell Soup Co. paid a $1.55 dividend per share in 2004, which grew to $1.95 in 2009.
This growth is expected to continue. What is the value of this stock at the beginning of
2010 when the required return is 10.5 percent?
70.
Consider a firm that had been priced using a 12 percent growth rate and a 16 percent
required return. The firm recently paid a $5.00 dividend. The firm has just announced that
because of a new joint venture, it will likely grow at a 12.5 percent rate. How much should
the stock price change (in dollars and percentage)?
71.
Suppose that a firm’s recent earnings per share and dividend per share are $2.50 and
$1.00, respectively. Both are expected to grow at 5 percent. However, the firm’s current
P/E ratio of 23 seems high for this growth rate. The P/E ratio is expected to fall to 19
within five years. Compute a value for this stock. Assume a 10 percent required rate.
72.
A firm has been losing sales due to technological obsolescence. It projects growth for the
future to be -2 percent. Its recent dividend was $2.00. What is the value of this stock when
the required return is 9 percent?
73.
A firm has been losing sales due to technological obsolescence. It projects growth for the
future to be -3 percent. Its recent dividend was $2.50. What is the value of this stock when
the required return is 7 percent?
74.
To list a stock on the NYSE, a company must meet minimum requirements that include all
of the following EXCEPT:
75.
Which of the following is an electronic stock market without a physical trading floor?
76.
Individuals who use their own stock inventory and capital to buy and sell the stocks they
represent are called:
77.
All of the following are stock market indices EXCEPT:
78.
GEN has 10 million shares outstanding and a stock price of $89.25. What is GEN’s market
capitalization?
79.
GEN has 1 million shares outstanding and a P/E ratio of 12. Its earnings per share is
$2.00. What is GEN’s market capitalization?
80.
GEN has 3 million shares outstanding and a P/E ratio of 15. Its earnings per share is
$3.00. What is GEN’s market capitalization?
81.
ABC has a net profit margin of 3.3 percent on Sales of $10,000,000. The firm has 50,000
shares outstanding. If the firm’s P/E is 19 times, how much is the stock selling for?
82.
ABC has a net profit margin of 4.3 percent on Sales of $12,000,000. The firm has 250,000
shares outstanding. If the firm’s P/E is 16 times, how much is the stock selling for?
83.
Which of the following indices best reflects the ten sectors of the economy?
84.
Studies of investor psychology have discovered that:
85.
Sally has researched GLE and wants to pay no more than $50 for the stock. Currently, GLE
is trading in the market for $54. Sally would be best served to:
86.
Which of the following is incorrect with respect to limit orders?
87.
Which of the following is incorrect with respect to preferred stock?
88.
JUJU’s dividend next year is expected to be $1.50. It is trading at $45 and is expected to
grow at 9 percent per year. What is JUJU’s dividend yield and capital gain?
89.
JUJU’s dividend next year is expected to be $5.50. It is trading at $45 and is expected to
grow at 4 percent per year. What is JUJU’s dividend yield and capital gain?
90.
Value stocks are:
91.
A firm does not pay any dividends at this point in time. Which valuation method should be
used on this stock?